Living Within Your Means, Part 2

Last time we looked at practical things you can do to check if you are spending more than you are earning. If you are, then you’re going into debt. Your credit card balances are probably going up and you’re not making any progress in paying down debt. Your checking account balance simply goes up and down as you deposit your pay checks and pay your bills; but nothing additional goes into reducing your debt or building savings.

Why does this happen? I feel that the constant drumbeat of easy money makes it

Lotus Head

Lotus Head

convenient for us to get into debt. We don’t have to “buy” the new car; we just get a loan. After all, they make it so easy. The monthly payment will be low enough to fit into what we spend each month. We don’t need to “buy” the new computer; we can just add it to our Best Buy account. How easy is that? We don’t have to save for vacation with family this summer; we can just charge it. It will only make the monthly payment go up by a few dollars. What’s the big deal?

The big deal is we never get to a place where we focus on paying off all of the debt. We simply live with the ever growing balance due until it hits a breaking point. The big deal is increasing debt and increasing payments add enormous stress to our marriage.

– Does all of the stress of money cause fights and arguments?
– Do you fight about adding another bill?
– Do you fight about whether or not to buy something?
– Do you decide to not spend for the kids because you don’t have enough money?
– How often do you fight about money issues in your home?

Or have you reached a point where you just stop fighting because you have given up. It’s hopeless now. You are getting further into debt and no matter what you say, it isn’t going to stop.

It’s interesting to note here that fighting over money is a problem for those who don’t have enough income to support their expenses and for those who have enough for all their expenses but fight over how to spend their excess income. Fighting and arguing over money can happen on both sides of the balance sheet. It is a problem that can exist for those who have little and those who have much.

In either case, honest and open communication about needs and expectations is necessary. We must discuss finances and what we need to do to solve our impasse.

More next time on how to resolve problems when we don’t have enough and how to handle problems when we have enough but we fight anyway…

Live Within Your Means, Part 1

In my next several blogs I will cover topics related to money and marriage. These will be common sense principles related to how we handle our money within our marriage. So let’s get started.

First and foremost is a very simple concept. We should not spend more than we earn. Or live within your means. No matter who you are, you have a finite amount of income. If you spend more than you earn, you go into debt using other people’s money to finance your overspending. That will cost you even more in interest, fees, and late charges.

So are you are living within your means? First, add up your’s and your spouse’s net income after taxes for each month. If you have payroll deductions for a variety of items, add those deductions back in to your net pay to come up with a TRUE net pay for each pay period. Compute your yearly net pay then divide by 12 for your monthly amount. Add any other income you get from part time jobs, child care income, rents, royalties, dividends, interest, or any other income. Add all of these together and come up with a monthly net income for your household.

Next, together, list all recurring monthly expenses for your household. Go to your cash receipts, checkbook statement, credit and debit card bills, automatic pay bills, and payroll deductions for the last 4-6 months. Add everything. Mortgage, utilities, gas, food, clothing, household, all insurance, car payments and maintenance, cable, phones, loan payments, child care, donations, vacations, property taxes, dining out, daily coffee, gifts, pets, entertainment, school expenses, personal care, hobbies, dues for clubs and magazines, and any other expenses. Also track what you put into savings. Put all of these items into a simple spreadsheet with the like expenses listed in separate columns. For example, keep all types of insurance together. Be as specific as possible with each expense. Next, add the columns up and add all the columns together to get a grand total. Get an average for expense categories that vary month to month. For example, food expense will vary, but a four month average will probably give a good idea of what you spend.

That’s part one of looking at your expenses. Part two is a project. Each of you should track EVERYthing you spend for the next three months. Use the same spreadsheet, each DAY writing down what you spent in each category. Keep a spreadsheet each month, totaling them at month’s end. Now you have a clear picture of what you spend each month and you can come up with an accurate monthly average for each category.

Compare your average monthly income to your average monthly expenses. Is it positive income or negative? If it is a negative amount, you are spending more than you earn and will no doubt be going into debt. More on living within your means next time…..